Trustee vs Executor: Understanding the Key DifferencesSep 05, 2023
This article about trustee vs executor by Michigan estate planning and elder law attorney Nicole Wipp is not intended to be, and should not be construed as, legal advice. For advice specific to your situation, call our office at (248)278-1511.
In Michigan, we must consider what will happen to our assets and who will manage them when we die or become incapacitated. Choosing an executor and trustee is one of the most important decisions you'll make during estate planning. These individuals will be responsible for managing your estate and carrying out your final wishes. But how do you choose the right person for the job, and what are their responsibilities?
Two terms you'll likely come across are trustee and executor. These may seem like interchangeable terms, but they're not. It's essential to understand the differences between the two and what other legal terms may come into play when making estate planning decisions. In this post, we'll cover the key differences between trustees and executors and whether or not one person can function as both.
What Are The Differences Between A Trustee And An Executor?
When someone creates a trust, they appoint a Trustee to manage and distribute the assets per the trust agreement. The Trustee has a fiduciary duty to act in the best interests of the trust's beneficiaries.
On the other hand, an Executor (in Michigan, we call this person a "Personal Representative") is appointed by a will to manage and distribute the assets of a deceased person. Their role is to fulfill the deceased person's wishes outlined in their will. Unlike a Trustee, an Executor's fiduciary duty ends once the assets have been distributed to the beneficiaries.
executors and trustees
Defining The Differences
To start, let's define what a trustee and an executor are.
What Is A Trustee?
- A trustee manages a trust, a legal instrument holding legal title to property or assets. The trustee's job is to manage the trust assets according to the trust document's terms to benefit the trust's beneficiaries.
What Is an Executor (Personal Representative)?
- An executor (Personal Representative) is appointed by a court or named in a valid will to manage a deceased person's estate. This individual is responsible for inventorying assets, paying debts and taxes, and distributing the remaining assets to the deceased's beneficiaries according to the will's terms.
executors and trustees
Do I Need Both?
It's typical to have both a trustee and an executor as part of a good estate plan. The primary difference between a trustee and an executor is what they do and when they do it. A trustee manages assets in a trust you set up during your lifetime or at the time of your death. Trustees have a significant legal responsibility to manage and invest trust assets for the benefit of the beneficiaries. Beneficiaries are the individuals or entities you designate to benefit from the trust.
On the other hand, an executor (Personal Representative) is someone you designate in your will to oversee the distribution of probate assets according to your wishes. A key difference between the two is that an executor does not have to manage assets over a more extended period, as the only assets they have control over are those that go through probate. Instead, an executor's role begins after your death and ends when they distribute your estate's probate assets.
Can One Person Function as Both an Executor and a Trustee?
In some cases, one person may be appointed to fulfill both roles of Executor and Trustee; this is quite common. However, it is important to consider whether this is the right decision carefully. The fiduciary duties of each role are distinct, and the time frames in which the duties are required may also be different.
So, can one person function as both an executor and a trustee? The short answer is yes. However, there are some important caveats to consider. If one person functions as both, they must ensure they don't mix the trust's assets with the estate's probate assets. They must also avoid potential conflicts of interest and adhere to the legal requirements for both roles.
When having the same person fill both roles, ensure that the person is capable, trustworthy, and understands the difference between the different roles' execution.
What Is a Guardian?
In most cases, a guardian is appointed during a probate process when the parents of a child pass away before the child reaches adulthood. You may name a guardian for your minor children. When naming a guardian, you specify who you believe is best suited to take care of your children, and the court will take your preference into consideration when appointing a guardian.
If You Don't Have a Power of Attorney, You Will Need to Have A Guardian
A guardian can also be appointed for an incapacitated adult without designated power of attorney. A Guardian is appointed by the probate court to be responsible for the person, health, and welfare of a minor child or incapacitated adult, including making medical and limited financial decisions.
Guardianship of minor children or incapacitated adults is a serious responsibility and should be closely discussed with family members and an estate planning attorney.
If you do not want a probate court to appoint a guardian for you if you become incapacitated, it is best to designate a person or persons under a power of attorney.
In either event, it is best to have legal advice and to get your wishes spelled out as part of your estate plan. Contact us today for help!
How to Choose an Executor and Trustee
Choosing the right executor and trustee is crucial to a smooth estate planning process. It's important to choose someone who is trustworthy, reliable, and has the necessary skills to carry out the position's duties. Executors and trustees often have a lot of responsibility and should be able to handle pressure well. It's important to choose alternates or backup trustees in case the first choice declines or is unable to fulfill the position's duties.
Should You Choose Family Or A Friend?
Often, people select someone close to them, like a family member or friend. However, in certain instances, it is best to choose a professional like an attorney, financial planner, or accountant in certain instances. Relatives or close friends can be affected by any family disputes, which may make it challenging to make impartial decisions.
Professional Help Can Be Used To Supplement Your Plan
It may be beneficial to engage a professional trustee if managing family expectations becomes too difficult. A professional's knowledge, objectivity, and training can ensure that your estate plan is executed as precisely as you designed.
However, even if you choose a family member or friend, they may always access legal advice by talking to a competent firm in the event of confusion or potential conflict.
If that's something you need, contact us today.
Can an Appointed Trustee, Guardian or Executor Decline the Role?
A key factor to consider when choosing a trustee or executor is whether the person is willing to take on the responsibility. Appointed trustees, guardians, or executors can decline the job if they feel it's outside their abilities or not something they want to handle.
That being said, yes, a trustee, guardian, or executor can decline the role if they choose to. It's important to choose someone who is willing and able to take on the responsibility of the position. If your primary trustee unexpectedly can't continue serving, whether due to health, accident, or changes in life circumstances, they can be removed or decline the role.
Naming an Alternate or Backup Is Essential
If a person declines, is incapable or is removed, an alternate should have already been named in the will or trust. If an alternate is not named, the court will appoint someone else. It's important to choose alternates to avoid complications and potential disputes.
Do You Need Help Fulfilling Your Responsibilities as Trustee, Guardian or Executor?
If you have been appointed as a Trustee, Guardian, or Executor (Personal Representative) in Michigan and you need assistance navigating your duties, stop worrying and just give us a call at 248-278=1511. We know what to do, and we can help you!
assets in the trust
The Importance of Getting The Right Help In Choosing a Trustee vs Executor
When it comes to estate planning and choosing a trustee vs executor, it's important to get the right advice. In fact, choosing an executor and trustee is one of the most important decisions you'll make during estate planning. Whether you appoint a family member, friend or professional, choose people willing and capable of fulfilling the role's responsibilities. Each person's situation is unique, and there is no one-size-fits-all solution.
The best way to ensure you are fulfilling your fiduciary, legal, and moral obligations is to consult an experienced estate planning attorney. Our firm's experienced estate and elder law attorney can walk you through all the necessary steps and ensure you make informed decisions concerning your assets.